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A meeting of the Federal Open Market Committee was held in
the offices of the Board of Governors of the Federal Reserve System

in Washington on Tuesday, March 6, 1956, at 10:00 a.m.
PRESENT:

Mr.
Mr.
Mr.
Mr.
Mr.

Martin, Chairman
Sproul, Vice Chairman
Balderston
Erickson
Johns

Mr. Mills
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.

Powell
Robertson
Shepardson
Szymczak
Vardaman
Fulton, Alternate

Messrs. Bryan and Leedy, Alternate Members,
Federal Open Market Committee
Messrs. Leach, Irons, and Mangels, Presidents
of the Federal Reserve Banks of Richmond,
Dallas, and San Francisco, respectively
Mr. Riefler, Secretary
Mr. Thurston, Assistant Secretary
Mr. Vest, General Counsel
Mr. Solomon, Assistant General Counsel
Mr. Thomas, Economist
Messrs. Abbott, Parsons, Roelse, Willis,
and Young, Associate Economists
Mr. Rouse, Manager, System Open Market Account
Mr. Carpenter, Secretary, Board of Governors
Mr. Sherman, Assistant Secretary, Board of
Governors
Mr. Koch, Assistant Director, Division of
Research and Statistics, Board of Governors
Mr. Miller, Chief, Government Finance Section,
Division of Research and Statistics, Board
of Governors
Mr. Marsh, Manager, Securities Department,
Federal Reserve Bank of New York
Mr.

Riefler reported that advices of the election by the Federal

Reserve Banks for a period of one year commencing March 1, 1956, of

-2

3/6/56

members and alternate members of the Federal Open Market Committee had
been received, and that each newly elected member and alternate member
had executed the required oath of office,
Mr. Treiber,

except that in

the case of

the form for the oath had been sent to him in New York

where it was understood that he would execute it as an alternate mem
ber of the Committee.

The members and alternate members were as fol

lows:
J. A. Erickson, President of the Federal Reserve Bank of
Boston, with A. H. Williams, President of the Federal
Reserve Bank of Philadelphia, as alternate member;
Allan Sproul, President of the Federal Reserve Bank of
New York, with William F. Treiber, First Vice Presi
dent of the Federal Reserve Bank of New York, as
alternate member;
W. D. Fulton, President of the Federal Reserve Bank of
Cleveland, as alternate member;
Delos C. Johns, President of the Federal Reserve Bank of
St. Louis, with Malcolm Bryan, President of the Fed
eral Reserve Bank of Atlanta, as alternate member;
Oliver S. Powell, President of the Federal Reserve Bank
of Minneapolis, with H. G. Leedy, President of the
Federal Reserve Bank of Kansas City, as alternate
member.

Upon motion duly made and seconded,
and by unanimous votes, the following
officers of the Federal Open Market Com
mittee were elected to serve until the
election of their successors at the first
meeting of the Committee after February
28, 1957, with the understanding that in
the event of the discontinuance of their
official connectio with the Board of
Governors or with a Federal Reserve Bank,
as the case might be, they would cease to
have any official connection with the
Federal Open Market Committee:

3/6/56
Wm. McC. Martin, Jr.
Allan Sproul
Winfield W. Riefler
Elliott Thurston
George B. Vest
Frederic Solomon
Woodlief Thomas
Wm. J. Abbott, Jr., Franklin L.
Parsons, H. V. Roelse, Parker
B. Willis, and Ralph A. Young

Chairman
Vice Chairman
Secretary
Assistant Secretary
General Counsel
Assistant General Counsel
Economist
Associate Economists

Upon motion duly made and seconded,
and by unanimous vote, the Federal Reserve
Bank of New York was selected to execute
transactions for the System open market
account until the adjournment of the first
meeting of the Committee after February 28,

1957.
Mr.

Sproul stated that the Board of Directors of the Federal Re

serve Bank of New York had selected Mr. Rouse as Manager of the System
Open Market Account,

subject to the selection of the Federal Reserve Bank

of New York by the Federal Open Market Committee as the Bank to execute
transactions for the System account and his approval by the Federal Open
Market Committee.
Upon motion duly made and seconded,
and by unanimous vote, the selection of
Mr. Rouse as Manager of the System Open
Market Account was approved.
Chairman Martin stated that he was voting for approval of Mr.
Rouse as Manager of the System Open Market Account although he dis
approved of the procedure now followed by the Committee under which the
board of directors of the agent Federal Reserve Bank selects the manager.
There were no personalities involved in

this feeling, the Chairman said,

but he referred to the action of the Committee in

authorizing appointment

3/6/56

4-.

of a special committee at the meeting on March 2,

1955, to study and

bring back to the Committee concrete proposals for perfecting the
structural and operating organization that would best implement the
policies of the Federal Open Market Committee.

This Committee, he said,

had met with the Board of Directors of the New York Bank last November
but he, as Chairman of the committee, had not called a meeting since

that time partly, at least, because of pressure of other problems.
Chairman Martin said that he intended to continue the Committee ap
pointed pursuant to that authorization until it had a report to submit
to the full Committee, and in this connection he stated that he pro
posed to have a meeting of the committee on the day on which the next
meeting of the Federal Open Market Committee (probably to be held on

Tuesday, March 27, 1956) took place.
Upon motion duly made and seconded,
and by unanimous vote, the minutes of the
meeting of the Federal Open Market Com
mittee held on February 15, 1956, were
approved.
Reference was made to a memorandum distributed with the agenda
for this meeting with respect to the procedure approved by the Committee
on March 2, 1955, whereby, in addition to members and officers of the
Committee and Reserve Bank Presidents not currently members of the Com
mittee, minutes and other records could be made available to any other
employee of the Board of Governors or of a Federal Reserve Bank with the
approval of a member of the Committee or another Reserve Bank President,
with notice to the Secretary.

The memorandum indicated the extent to

3/6/56

-5

which such records were being made available, on the basis of advices
received by the Secretary, and suggested that following this meeting a
review be made by the members of the Committee and the Reserve Bank
Presidents of the persons authorized to have access to the records, with
proper notice to the Secretary of any changes that should be made in
existing authorizations.
It was agreed that no change should
be made at this time in the procedure for
giving access to minutes and other records
of the Federal Open Market Committee.
In
taking this action, it was understood that
following this meeting the Secretary would
be informed of any changes that should be
made in the existing authorizations.
Chairman Martin commented on the traditional care with which
minutes and other records of the Open Market Committee were handled,
noting that there was a problem of how to train additional persons in
the System so that they would be prepared to carry out the activities
of the Federal Open Market Committee.
secrecy regarding its

The Committee wanted to maintain

discussions and activities, but it

also should

encourage the development of as much talent as possible for this work
throughout the System.

This was a responsibility within the province

of each member of the Committee,

the Chairman noted, and each individual

who attended the meetings must judge the extent to which Committee
discussions should be passed on to others.

He was inclined to think,

Chairman Martin said, that there might have been more secrecy or re
striction in

handling some of the open market materials and discussions

3/6/56

-6

at some of the Federal Reserve Banks and at the Board than was neces

sary in order to maintain the confidential nature of the Committee's
operations.

This might have limited the development of knowledge on

the part of additional individuals in the System undesirably.

Chairman

Martin said that he was not suggesting any change in procedure which
would result in
in

lack of judicious use of the materials or information

the discussions at the meetings,

and he noted that in

the past there

had been some unfortunate "leaks" regarding Committee discussions and
decisions.

However,

not be furthered if

he felt that the likelihood of such leaks would
the individual Committee members saw fit

to make

materials available to selected additional persons for training purposes.
Chairman Martin referred to the resolution adopted by the Fed
eral Open Market Committee on November 20, 1936, authorizing each Re
serve Bank to purchase and sell, at home and abroad, cable transfers
and bills of exchange and bankers'

acceptances payable in foreign cur

rencies, to the extent that such purchases and sales may be deemed to
be necessary or advisable in

connection with the establishment, mainte

nance, operation, increase, reduction, or discontinuance of accounts of
Federal Reserve Banks in

foreign countries.

It was agreed unanimously that no
action should be taken at this time to
amend or terminate the resolution of
November 20, 1936.
Before this meeting there had been sent to the members of the

Committee a memorandum dated February 23, 1956, from Mr. Rouse and Mr.
Leonard, Director of the Board's Division of Bank Operations, with

3/6/56

-7

respect to the allocation of securities in the System open market
account among the several Federal Reserve Banks,
place on April 2,

as it

would take

1956, under the formula which became effective

September 1, 1953.

This formula provided for percentage allocations

to each Federal Reserve Bank based on the ratio of total assets of
each Bank to total assets of all

Reserve Banks computed on a daily

average basis during the twelve months ending in February.
It was agreed unanimously that
no action should be taken at this time
to amend or terminate the procedure for
allocation of securities in the System
open market account which was adopted
pursuant to the action of the Committee
at its meeting on June 11, 1953.
Chairman Martin noted that authority had been given to the
Chairman of the Committee at the meeting on March 1, 1951, and renewed
in

March of each year since that time, to appoint a Federal Reserve

Bank as agent to operate the System account temporarily in
Federal Reserve Bank of New York was unable to function.

case the
The report

of the Subcommittee on Defense Planning dated January 9, 1956, which
was approved by the Federal Open Market Committee on January 10, 1956,
included a recommendation that this authorization be reaffirmed.
The authority of the Chairman to
appoint a Federal Reserve Bank as agent
to operate the account temporarily in
case the Federal Reserve Bank of New
York was unable to function was re
affirmed by unanimous vote.
Unanimous approval was given to
distribution of the weekly report of

3/6/56

-8open market operations prepared at the
Federal Reserve Bank of New York as
follows:
1.
2.
3.
4.
5.
6.
7.
8.
9.

10.

11.

The members of the Board of Governors.
The Presidents of the 12 Federal Reserve Banks.
Officers of the Federal Open Market Committee.
The Secretary of the Treasury.
The Under Secretary of the Treasury.
The Assistant Secretary of the Treasury working on
debt management problems.
The Fiscal Assistant Secretary of the Treasury.
The Chief of the Division of Bank Operations of the
Board of Governors.
The officer in charge of research at each of the Fed
eral Reserve Banks which is not represented by its
President on the Federal Open Market Committee.
The alternate member of the Federal Open Market Com
mittee from the Federal Reserve Bank of New York;
the Assistant Vice President of the Federal Reserve
Bank of New York working under the Manager of the
System Account; the Managers of the Securities De
partment of the New York Bank; the Vice President
in Charge and the Manager of the Research Depart
ment of the New York Bank; and the confidential
files of the New York Bank as agent for the Fed
eral Open Market Committee.
With the approval of a member of the Federal Open
Market Committee or any other President of a Fed
eral Reserve Bank, with notice to the Secretary,
any other employee of the Board of Governors or
of a Federal Reserve Bank.

Before this meeting there had been sent to the members of the
Committee a draft of authorization from the Federal Open Market Committee
to the Federal Reserve Bank of New York to purchase bankers'

acceptances.

This draft represented a revision of the authorization approved in prin
ciple at the meeting of the Committee on March 2, 1955, under which the
executive committee was given the authority to issue instructions to a
Federal Reserve Bank for such purchases when a resolution in a form
satisfactory to the executive committee had been prepared.

Such

3/6/56

-9

authorization was given by the executive committee to the Federal
Reserve Bank of New York, effective March 29, 1955; and under the
terms of the resolution abolishing the executive committee, adopted
at the meeting on June 22,

1955, that authorization by the executive

committee became an authorization of the full Committee.

The pro

posed resolution was drafted to continue as an authority from the
Committee to the New York Bank the existing provisions with respect
to purchases of bankers' acceptances.
Mr. Robertson said that he would oppose a renewal of the
existing authority with respect to bank acceptance policy.

In this

connection, he made a statement substantially as follows:
My views on this matter have not changed since a year
ago, when I voted against the proposal that the System pur
chase bank acceptances "at market rates of discount" and
maintain a portfolio of such acceptances.
Originally, the suggestion that we participate actively
in the bank acceptance market was based on the idea that this
market was impeded by "administered rate constriction" and
that the situation could be alleviated by modest purchases
at our initiative.
Upon further consideration this line of
reasoning was abandoned, and when the Committee adopted this
policy, in March 1955, it was for the stated purpose of
"showing the interest of the central banking organization in
this market."
In my opinion a fundamental principle of our policy
should be that the central bank should interfere with free
market forces only to the extent necessary to discharge our
responsibilities. We should stay out of market situations
unless it is clear that our participation will yield specific
When we stepped into the acceptance market there
benefits.
was no basis for thinking that action was necessary, and
there is no evidence that the maintenance of a Federal Re
serve portfolio of bank acceptances during the past year
We are properly
has aided the acceptance market in any way.
subject to the charge that we have meddled gratuitously in
a situation that did not need our participation.

-10

3/6/56

For these reasons, I propose that the Federal Reserve
System withdraw from active participation in the acceptance
market. I believe that we could better support and encourage
that market, if that be our aim, by standing ready to pur
chase acceptances at published rates that ordinarily would
be a fraction above corresponding market rates.
However,
even such action is not warranted at this time.
Chairman Martin called for comments from other members of the
Committee,

and in response to a question from Mr. Balderston, Mr. Rouse

referred to a memorandum prepared at the Federal Reserve Bank of New

York under date of March 5, 1956, and distributed to the members of
the Committee at the beginning of this meeting reviewing the results
of System bankers' acceptance operations to date.

Mr. Rouse commented

briefly on the report, noting that a desire to increase flexibility of
rates was a prime reason for embarking on the present policy, and that
the System's activity in this market had contributed noticeably to

flexibility in acceptance rates. Also Mr. Rouse felt that this activity
had been of some help from the standpoint of dealers in acceptances.
The volume had been so small, however, that a great deal of importance
could not yet be attached to the operation. Mr. Rouse said that it was
hoped that there ultimately would be more widespread convertibility of
more currencies and, in his view, it would be worth while to continue
the existing authority for purchases of bankers' acceptances for the
purposes indicated at the time the authorization was approved a year
ago, namely, that the System should assist in the further development
of an acceptance market in the United States, with a view to improving
this country's means of financing foreign trade and the functioning of
an international money market.

-11

3/6/56

Chairman Martin noted that there had been no second to Mr.
Robertson's proposal that the Federal Reserve System withdraw from
active participation in the acceptance market.
Thereupon, upon motion duly made
and seconded, the following authoriza
tion was approved, Messrs. Martin, Sproul,
Balderston, Erickson, Johns, Mills, Powell,
Shepardson, Szymczak, Vardaman, and Fulton,
voting for the resolution, and Mr. Robertson
voting "no" for the reasons indicated:
The Federal Open Market Committee hereby authorizes the
Federal Reserve Bank of New York for its own account to buy
from and sell to acceptance dealers, at market rates of dis
count, prime bankers' acceptances of the kinds designated in
the regulations of the Federal Open Market Committee, at such
times and in such amounts as may be advisable and consistent
with the general credit policies and instructions of the Fed
eral Open Market Committee, provided that the aggregate amount
of such bankers' acceptances held at any one time by the Fed
eral Reserve Bank of New York shall not exceed $25 million.
The Federal Open Market Committee further authorizes the
Federal Reserve Bank of New York to enter into repurchase agree
ments with nonbank dealers in bankers' acceptances covering
prime bankers' acceptances of the kinds designated in the regu
lations of the Federal Open Market Committee, subject to the
same conditions on which the Federal Reserve Bank of New York
is now or may hereafter be authorized from time to time by the
Federal Open Market Committee to enter into repurchase agree
ments covering United States Government securities, except
that the maturities of such bankers' acceptances at the time
of entering into such repurchase agreements shall not exceed
six months and except that in the event of the failure of
the seller to repurchase, such acceptances shall continue to
be held by the Federal Reserve Bank or shall be sold in the
open market. Such repurchase agreements shall be at the
same rate as that applicable, at the time of entering into
such agreements, to repurchase agreements covering United
States Government securities.
On July 20, 1954, the executive committee of the Federal Open
Market Committee,

pursuant to the authority given that committee to

arrange for transactions for the System open market account with a view,
among other things,

"to the practical administration of the account,

-12

3/6/56

authorized the Manager of the System Account to engage in purchase
and sale transactions in the market for "cash," i.e.,

for delivery

and payment on the same day as that on which the transaction was
executed.

Previously, transactions had been limited to "regular"

or next-day delivery, which prevented the System from making the
most efficient use of its facilities in meeting all situations which
might arise, particularly those which developed suddenly or which
might be impossible to predict very far in

advance.

This authoriza

tion, which became an authorization of the full Committee at the time
the executive committee was abolished on June 22, 1955, was in addition
to the procedure for "regular" transactions and did not contemplate
that all System transactions would be on a cash basis.
In response to a question from Mr. Vardaman, Mr. Rouse stated
that the authority for cash transactions had been used quite actively
in recent months.

While he did not have precise figures of the pro

portionate volume of transactions engaged in on a cash or regular
delivery basis, Mr.

Rouse expressed the opinion that the substantial

use that had been made of the procedure for completing transactions
for delivery and payment on the same day had been of definite assist
ance in improving the techniques of operations for the System account.
Unanimous approval was given to the
continuance without change of the under
standing that the Manager of the System
Account was authorized to engage in trans
actions for either cash delivery or regular
delivery.

3/6/56

-13
Chairman Martin next referred to certain statements of operat

ing policies or procedures which had been adopted in 1953 and reaffirmed
in 1954

and 1955, and inquired whether there was agreement that the

following statement of policy with respect to operations for the System
account, listed as item "a" under topic 7 of the agenda for this meet
ing, should be continued:
It is not now the policy of the Committee to support any
pattern of prices and yields in the Government securities
market, and intervention in the Government securities market
is solely to effectuate the objectives of monetary and credit
policy (including correction of disorderly markets).
It was agreed unanimously that the
foregoing statement of operating policy
should be continued without change.
Chairman Martin then referred to the following additional state
ments of operating policy, listed as items "b" and "c" under topic 7 of
the agenda, inquiring whether the Committee desired that they be re
affirmed at this time:
b.

Operations for the System account in the open market,
other than repurchase agreements, shall be confined
to short-term securities (except in the correction of
disorderly markets), and during a period of Treasury
financing there shall be no purchases of (1) maturing
issues for which an exchange is being offered, (2)

when-issued securities, or (3) outstanding issues of
comparable maturities to those being offered for
exchange; these policies to be followed until such
time as they may be superseded or modified by further
action of the Federal Open Market Committee.
c.

Transactions for the System account in the open market
shall be entered into solely for the purpose of provid
ing or absorbing reserves (except in the correction of
disorderly markets), and shall not include offsetting
purchases and sales of securities for the purpose of

3/6/56

-14altering the maturity pattern of the System's port
folio; such policy to be followed until such time
as it may be superseded or modified by further action
of the Federal Open Market Committee.
Mr. Sproul stated that he had reexamined his views concerning

the continuing operating policies adopted by the Committee during the
past three years as listed under item 7 of the agenda for this meeting,
and that he was still opposed in principle and in practice to these
operating rules which confine our ordinary operations to short-term
Government securities, and which forbid transactions in

certain securi

ties at times of Treasury financing and offsetting sales and purchases
of securities, until such time as these rules may be superseded by
further action of the Committee.

Mr. Sproul continued his statement

on this subject substantially as follows:
Whatever justification there may have been for such
continuing rules, when first enacted, would seem to me to
have disappeared with adoption of a program which brings
together the full Committee every three weeks, and places
it directly in relation with the operating bank, without
the intermediary of an executive committee. There is no
longer need, if there ever was, for the Committee to con
tinue to pass these ordinances of self denial, which tend
to inhibit freedom of discussion and action by the Com
mittee, and to generate complaint and criticism by some
sectors of the market and by some of those in public life
when current circumstance dictates action by the Committee
to supersede its continuing rules. This will be increasingly
so, I think, as time passes and it is more and more for
gotten that these experimental rules are only in effect until
superseded by further action of the Committee.
Now that we have the means of regularly determining
policy every three weeks, or oftener if special circumstances
require it, and of keeping in touch with operations from day
to day through telephone and wire reports, it seems to me
that it would be better to remove these particular continuing
operating policies from the record (paragraphs b and c of
item 7 of the agenda), and to discuss the matters with which
they are concerned whenever we meet and whenever any member
of the Committee or the Manager of the System Open Market

-15

3/6/56

Account thinks that the current situation suggests a
possible deviation from the practices of the past three
years.
What I am getting at here is to try to introduce
some greater flexibility into our thinking, to dispel
the idea inside and outside the System that we are frozen
in a pattern, and to create an atmosphere which will en
courage rather than discourage discussion of these im
portant operating problems. It is significant, I think,
that there has been no real discussion of these continu
ing operating policies, other than formal yes and no
votes, for many months.
I may have contributed to this
by suggesting a period of study of these rules in practice.
I hope to present to the Committee, shortly, the results
of my own study and I would also hope that this will
stimulate a re-examination of our position on the part of
all members of the Committee.
Mr. Mills stated that he would like to open the rebuttal to Mr.
Sproul's argument by expressing the opinion that the best proof of the
efficacy of the policy set out in

"section (b) of continuing operating

policies" lies in the tested experience of the past three years.
experience,

This

he said, has demonstrated very clearly that this policy, in

facilitating attainment of the System's general objectives, has also
clarified to the market what can be expected in the way of positive
System action at the time of a Treasury financing operation.
The remainder of Mr.

Mills'

statement was substantially as fol

lows:
Mr. Sproul has pointed out--and I have great
sympathy for his point of view--that there is a danger
that rigid adherence to the principles set forth in
section (b) can become like something carved on graven
stone that can never afterwards be changed. However,
we would be failing in our duties as members of the
Federal Open Market Committee were we ever to allow
ourselves to drift into so inert an attitude. My
confidence in the membership of this Committee is in
surance enough against so remote a possibility.

3/6/56

-16

The wording of section (b) distinctly sets out that
this policy remains in effect solely at the discretion of
the Open Market Committee and is subject to change when
ever required, either in the event of urgency or following
deliberative discussions. On the question of emergency or
deliberative decisions, surely the Open Market Committee
should always strive to be a deliberative body whose readi
ness for reaching quick decisions is helped and not hindered
by reliance on time-tested principles. We have learned
recently in a rather difficult period that occasions can
arise requiring hurried meetings of the Committee and risk
ing hasty decisions. It seems to me that abiding by a
proven principle, like that of section (b), in serving to
preserve the deliberative process for the Open Market Com
mittee, affords protection against hasty decisions that can
result in undesirable policy deviations. In my opinion,
the rare occasion calling for a deviation from the policy
contained in section (b) has yet to be witnessed, although

it is of course possible of occurrence.
Mr. Erickson recalled the discussions of these operating policies
in

1953 and the fact that he had joined Mr.

Sproul in voting in December

1953 to add to the statement of procedure for confining operations to
short-term securities and avoiding transactions in securities involved
in

a Treasury financing, a clause which would have provided that the

policy be followed until the next meeting of the Federal Open Market
Committee.

He also had voted against the statement of policy preclud

ing offsetting purchases and sales of securities for the purposes of
altering the maturity pattern of the System's portfolio.

Mr. Erickson

went on to say that he would like to see more flexibility in these
matters.

He noted that the statements under discussion had been

adopted by the Committee in

1953, That they had been reaffirmed in

March of 1954 and again in March of 1955, and they were now being

-17

3/6/56

presented again without having been changed in the interim.

Mr.

Erickson questioned the meaning of the concluding clauses of the
two statements under discussion which provide that the policies be
followed until such time as they may be superseded or modified by
further action of the Committee.

He said that reaction of the

financial community and the financial press to last November's de
viation from the policy against purchases of securities involved
in

a Treasury financing made it

apparent that dealers and others

had come to look upon these as inflexible statements of procedure.
This had resulted in
the opinion that it

confusion, Mr.

Erickson said, and he expressed

would be desirable for the Committee to give

consideration to these procedures at frequent meetings and not to
permit them to be set as policies to be followed more or less for
all time.

He thought a situation would arise again when the Com

mittee would wish to depart from the statements of policy.
Chairman Martin responded that the statements of policy
could be called up for discussion at every meeting if

sired.

that was de

He did not think the Committee should abandon the statements

and have no policy guidance from one meeting to another.

Chairman

Martin also expressed the view that Mr. Sproul's suggestion that the
statements be removed from the record because there was a means of
regularly determining policy every three weeks did not seem appli
cable since, with discontinuance of the executive committee, each
member of the Committee was now privileged to bring any of these

3/6/56

-18

questions up for discussion at every meeting, now ordinarily held
at three-week intervals.

He would not object to having the minutes

indicate that members were encouraged to bring these matters up for
discussion, but he felt that the Committee should give an indication
as to what its

general policy should be on the matters dealt with by

the statements.
Mr.

Sproul stated that he disagreed with Mr.

Mills.

He did

not think the present operating policies had contributed to the effec
tiveness of credit policy.

This was primarily perhaps because they

had not, as the Committee was encouraged to believe, contributed to
the better functioning of the Government securities market in the way
that was supposed to have resulted.

With respect to Chairman Martin's

comment that the statements could be brought up for discussion at each
meeting,

Mr. Sproul said that their adoption as continuing policies had

proved to be a "wet blanket" on discussion despite the last clause in
the "b" and "c" statements; there had been a tendency for members of
the Committee to be divided into rigid groups with their minds made
up either for or against the policy.

Removal of the statements would

not mean that the Committee would not have any policy between meetings,
Mr. Sproul said:
that would make it

it

could adopt the same statement but with a wording
clear that the Committee would constantly be

affirmatively taking action to continue the statement rather than to
have the statement in a form which indicated it

to be a policy that

could only be changed under the most urgent circumstances.

3/6/56

-19
During the ensuing discussion, Mr. Balderston suggested

that perhaps the substance of statement "b" should be looked upon
as guidance to current actions and included in

the directives to be

issued to the Federal Reserve Bank of New York as agent for the
System account at each meeting.

He was not suggesting a change at

this time but felt that such a change might be considered at a
later meeting.
Chairman Martin said that he would like to make the point
that consideration of the substance of these statements had not gone
for three years without being reaffirmed:

Mr. Sproul had seen to it

that the Committee had had discussions of the statements at intervals,
and there had been public discussions of the statements with the re
sult that they had been constantly under re-examination.
Martin said that they should be re-examined.

Chairman

However, he felt that

the Committee itself had been responsible for getting the statements
into a framework where more importance was attached to them than was
warranted--an importance that would not have developed if
mittee had not been in
the statements,

so much disagreement within itself

the Com
regarding

and drawn more public attention to them than was

justified.
Mr.

Leach felt that one of the problems was the drawing of a

line between a public record of credit policy and statements having
to do with operating practices or procedures which need not go into
a public record.

He recognized the difficulty of drawing a line

3/6/56

-20

between these two but hoped that the policy record could more and
more be a record of credit policy actions or decisions, and less
and less a record relating to operating techniques or practices.
Mr.

Bryan felt

that the discussion this morning was largely

on matters of form rather than substance.
need a constitution,
policies were needed.
ment that existed in

The Committee might not

but some general rules as to its

operating

The real problem was the fundamental disagree
the Committee regarding the substance of the

statements under discussion.

He thought it

doubtful that all members

of the Committee would ever agree on each of the statements of pro
cedures being discussed.
After further discussion, Mr.
Mills moved that the Committee re
affirm the statements of operating
procedure as set forth under "b" and
"c" above, pending whatever study the
Committee might decide to make along
the lines suggested by Messrs.
Balderston and Sproul.
There was a long discussion of Mr.
Mr.

Mills'

motion, during which

Shepardson raised the question when consideration would be given to

the substance of these statements.

He noted that reference to them had

been made at a number of meetings within the past year, and he expressed
the hope that a full scale discussion of their substance could be had
at an early meeting.
In

the course of the discussion, Mr.

suggestion was accepted by Mr.

Vardaman suggested and the

Mills, that the last clause of Mr.

Mills'

-21

3/6/56

motion be eliminated in order to make clear that at this point the

Committee was voting only on the question whether to reaffirm the
statements in their present form.
After further discussion, Mr. Mills'
amended motion was put by the Chair and
carried, Messrs. Martin, Balderston,

Erickson, Johns, Mills, Powell, Robertson,
Shepardson, Szymczak, Vardaman, and Fulton
voting for the motion, and Mr. Sproul vot
ing "no" for the reasons he had indicated.
In a further discussion of the suggestions for re-examination
of the continuing operating policies listed above as "b" and "c", it
was agreed that the agenda for the next meeting of the Committee, to
be held on Tuesday, March 27, 1956, would provide for a full discus
sion of suggestions to be submitted to the Secretary regarding pro
cedures that might be followed in reviewing these statements, as re
affirmed at this meeting.
At Chairman Martin's request, Mr. Vest commented on drafts
of two resolutions which would carry out paragraph A-1, D, E, K, and L
of the report of the Subcommittee on Defense Planning dated January 9,
1956, and approved by the Committee on January 10, 1956.

Mr. Vest

stated that one of the resolutions would provide for the continued
operation of the Committee during an emergency, while the other would
authorize certain actions by Federal Reserve Banks during an emergency.
Mr. Robertson stated that in his opinion the drafts of resolu
tions carried out satisfactorily the recommendations contained in the
report of the Subcommittee on the matters covered by the resolutions,

3/6/56

-22-

and Mr. Sproul concurred in this view.
Thereupon, upon motion duly made
and seconded, unanimous approval was
given to the following resolutions:

RESOLUTION OF THE FEDERAL OPEN MARKET COMMITTEE TO PROVIDE

FOR THE CONTINUED OPERATION OF THE COMMITTEE DURING AN EMERGENCY
In the event of war or defense emergency if the Secretary
or Assistant Secretary of the Federal Open Market Committee (or
in the event of the unavailability of both of them, the Secretary
or Acting Secretary of the Board of Governors of the Federal Re
serve System) certifies that as a result of the emergency the
available number of regular members and regular alternates of
the Federal Open Market Committee is less than seven, all powers
and functions of the said Committee shall be performed and exer
cised by, and authority to exercise such powers and functions is
hereby delegated to, an Interim Committee, subject to the follow
ing terms and conditions.
Such Interim Committee shall consist of seven members, com
prising each regular member and regular alternate of the Federal
Open Market Committee then available, together with an additional
number, sufficient to make a total of seven, which shall be made
up in the following order of priority from those available: (1)
each alternate at large (as defined below); (2) each President
of a Federal Reserve Bank not then either a regular member or an
alternate; (3) each First Vice President of a Federal Reserve Bank;
provided that (a) within each of the groups referred to in clauses
(1), (2), and (3) priority of selection shall be in numerical
order according to the numbers of the Federal Reserve Districts,
(b) the President and the First Vice President of the same Fed
eral Reserve Bank shall not serve at the same time as members of
the Interim Committee, and (c) whenever a regular member or
regular alternate of the Federal Open Market Committee or a
person having a higher priority as indicated in clauses (1),

(2), and (3) becomes available he shall become a member of the
Interim Committee in the place of the person then on the Interim
Committee having the lowest priority. The Interim Committee is
hereby authorized to take action by majority vote of those
present whenever one or more members thereof are present, pro
vided that an affirmative vote for the action taken is cast by
at least one regular member, regular alternate, or President
of a Federal Reserve Bank. The delegation of authority and
other procedures set forth above shall be effective only during
such period or periods as there are available less than a total
of seven regular members and regular alternates of the Federal
Open Market Committee.

3/6/56

-23

As used herein the term "regular member" refers to a
member of the Federal Open Market Committee duly appointed
or elected in accordance with existing law; the term "regular
alternate" refers to an alternate of the Committee duly elected
in accordance with existing law and serving in the absence of
the regular member for whom he was elected; and the term
"alternate at large" refers to any other duly elected alternate
of the Committee at a time when the member in whose absence he
was elected to serve is available.
RESOLUTION OF FEDERAL OPEN MARKET COMMITTEE AUTHORIZING
CERTAIN ACTIONS BY FEDERAL RESERVE BANKS DURING AN EMERGENCY
The Federal Open Market Committee hereby authorizes each Fed
eral Reserve Bank to take any or all of the actions set forth be
low during war or defense emergency when such Federal Reserve Bank
finds itself unable after reasonable efforts to be in communication
with the Federal Open Market Committee (or with the Interim Com
mittee acting in lieu of the Federal Open Market Committee) or when
the Federal Open Market Committee (or such Interim Committee) is
unable to function.
(1) Whenever it deems it necessary in the light of economic
conditions and the general credit situation then prevailing (after
taking into account the possibility of providing necessary credit
through advances secured by direct obligations of the United States
under the last paragraph of section 13 of the Federal Reserve Act),
such Federal Reserve Bank may purchase and sell obligations of the
United States for its own account, either outright or under re
purchase agreement, from and to banks, dealers or other holders of
such obligations.
(2) In case any prospective seller of obligations of the
United States to a Federal Reserve Bank is unable to tender the
actual securities representing such obligations because of condi
tions resulting from the emergency, such Federal Reserve Bank may,
in its discretion and subject to such safeguards as it deems
necessary, accept from such seller, in lieu of the actual securi
ties, a "due bill" executed by the seller in form acceptable to
such Federal Reserve Bank stating in substantial effect that the
seller is the owner of the obligations which are the subject of
the purchase, that ownership of such obligations is thereby trans
ferred to the Federal Reserve Bank, and that the obligations
themselves will be delivered to the Federal Reserve Bank as soon
as possible.
(3) Such Federal Reserve Bank may in its discretion pur
chase special certificates of indebtedness directly from the
United States in such amounts as may be needed to cover overdrafts

3/6/56

-24

in the general account of the Treasurer of the United States on
the books of such Bank or for the temporary accommodation of
the Treasury, but such Bank shall take all steps practicable at
the time to insure as far as possible that the amount of obliga
tions acquired directly from the United States and held by it,
together with the amount of such obligations so acquired and
held by all other Federal Reserve Banks, does not exceed $5 bil
lion at any one time.
Authority to take the actions above set forth shall be
effective only until such time as the Federal Reserve Bank is
able again to establish communications with the Federal Open
Market Committee (or the Interim Committee), and such Com
mittee is then functioning.
Before this meeting there had been distributed to the members of
the Committee a report of open market operations covering commitments
executed December 13, 1955 through February 29, 1956,

and at this meeting

there was distributed a supplementary report covering commitments executed
March 1-5, 1956, inclusive.

Copies of both reports have been placed in

the files of the Federal Open Market Committee.
Mr. Rouse stated, in

response to a question from Chairman Martin,

that the System account had done the best it
of the Committee in

could to carry out the wishes

a difficult situation, and operations seemed to have

worked out reasonably well.
nouncement regarding its

Reaction of the market to the Treasury an

forthcoming refinancing indicated a surprisingly

successful offering with little

attrition.

Mr. Rouse thought it

unlikely

that any suggestion would be made to the Committee that the System give
assistance in

this refinancing.

He noted, however, that at this stage

the final result could not be forecast accurately,
tions now bore out the views he had expressed.
Mr.

although all indica

A third point to which

mentioned
Rouse referred was the large calendar of corporate financing

3/6/56

-25

in the report distributed.

Large New York Banks were suggesting this

was an appropriate time for corporations to fund bank loans.
the factors in

One of

this development was the desire of banks to improve

their liquidity positions.
Chairman Martin stated that question had been raised concerning
the action of the System account in making available repurchase agree
ments since the last meeting of the Committee, and he asked that Mr.
Rouse comment on this matter.
Mr. Rouse said that he had endeavored to open the doors some
what for repurchase agreements and that they had been extended to a
number of dealers in

recent weeks.

The amounts had not been large.

He reported discussions regarding dealers'
of banks in

loans and the responsibility

a Treasury financing operation, both among representatives

of the American Bankers Association and the Investment Bankers Associa
tion.

In his discussions with dealers,

to make it
it

Mr. Rouse said, he had attempted

clear that while the System account was willing to assist,

expected dealers to find money that was available before they came

to the Federal Reserve for assistance.
Mr.

Mills said that in

his opinion the handling of the account

since the preceding meeting had been entirely appropriate.

He then com

mented on the forthcoming Treasury financing and the acknowledged re
sponsibility of the Federal Reserve to cooperate with a Treasury financ
ing operation to the utmost possible up to the point of interference
with the System's objectives for credit policy.

He felt that the

-26

3/6/56

Manager of the System Open Market Account had very meticulously
followed that principle in the present Treasury financing opera
tion, in

that the System's policy objectives had in

no wise been

deterred by the reserves that had been supplied to the market.
Continuing, Mr. Mills said that fortunately the point of view of
the market at the present time indicated that the Treasury should
not experience a heavy attrition in its

refinancing program.

How

ever, he pointed out that whatever the System could do to minimize
attrition in this or following Treasury financing operations would
benefit the Treasury in the course of the next few months in that it
could take fuller advantage of any budget surplus available to effect
a dramatic and heartening reduction in the Federal debt by way of
offering a lesser amount of refunding securities than the amount of
securities maturing.

Mr. Mills emphasized that a reduction in

the

Federal debt by the unspectacular route of attrition would not offer
the same psychological advantages of the alternative procedure.
Mr. Rouse commented again on the outlook for the Treasury
financing,

stating that the System account was attempting to follow

developments very closely from day to day.
Upon motion duly made and seconded,
and by unanimous vote, the transactions
for the System account during the period
December 13, 1955, through March 5, 1956,
inclusive, were approved, ratified, and
confirmed.
Members of the Board's staff then entered the room to assist
in

a presentation of an economic review, illustrated by chart slides.

3/6/56

-27

A copy of the script of the review was sent to each member of the
Committee following the meeting.

The review stated that industrial

production in the United States, like gross national product, had
shown little
vances.

further change recently,

following earlier marked ad

Some comments regarding this leveling off called attention

to selective reductions in demand and their possible significance for
economic prospects and policy.

Other observers emphasized that the

leveling off came only after production in many lines had reached
near capacity levels and upward pressures on industrial prices had
developed.

Industrial prices in the United States are now substanti

ally higher than last spring, it was stated, and increases have con
tinued in

recent months although at a somewhat less rapid rate than

earlier.

In concluding the review, Mr. Thomas made the following

statement:
As we have seen, recovery and expansion in activity
have been followed by little
change.
To some observers this
has suggested that the forces of recovery may be about spent
and that concern for the future should relate to possible
declines in activity and employment--or at least to the pos
sible failure of activity to increase enough to make full
use of our expanding resources.
In this view not much con
cern need be felt about the possibility of further price
advances. In another view, the forces of expansion are
still strong, leveling off of output is due in considerable
part to capacity limitations, and the threat of further
broad price advances is still
very real.
Some support can be found in the facts for each of the
positions. Evidence of diminishing expansionary forces is
seen, for example, in the consumer credit field. The rapid
rise in instalment credit associated with easier terms and
high auto sales was moderating by the fourth quarter, as
extensions declined and repayments continued to rise, and
a further slowing is evident so far this year. In the

3/6/56

-28-

housing field, mortgage lending and housing starts are down
somewhat from earlier very high levels.
Business inventories of durable goods were higher at the
end of January in relation to sales than they had been earlier,
and the rate of inventory accumulation in the economy generally
in recent months has been larger than would be indefinitely
sustainable.
Agricultural incomes were down further last year, reflect
ing lower prices, especially for hogs. While land values rose
somewhat until autumn, the value of livestock on farms--though
not the number--was considerably reduced.
At the beginning of this year farmers owed more on short
and long term than a year ago--about 10 to 15 per cent moreand in some areas they have drawn down their deposits appreciably.
Price increases for farm products since the turn of the year have
been largely seasonal. Large surpluses place limits upon the
possibility of price increases for leading crops.
In industry there are important lines, such as textiles, in
which increasing demands have been readily met by higher produc
tion without important price advances. Increases in list prices
for new cars could not be made effective in retail markets.
Looking at these facts alone, one might conclude that de
mands may not be adequate to provide for further growth in the
economy.
High on the list of facts supporting the view that the
threat of broad price increases is still
real, is continuing
operation of steel mills at capacity despite reduction of de
mands from the auto industry. Railroad car builders, machinery
producers, builders, and other users who had been unable to
obtain enough steel are now in a better position to increase
their production to fill orders already booked or in prospect.
A related basic fact is the expansion going on in capital
equipment outlays. Apparently equipment programs are being
further expanded in this period of little
change in over-all
activity. In addition, outlays for consumer non-durables and
services in the fourth quarter rose further and outlays of
State and local governments have been continuing their upward
trend. The volume of new capital issues by corporations and by
State and local governments has increased recently and the
calendar for prospective new issues is impressively large.
The volume of orders received by manufacturers continued
large through January. The most recent fluctuations have repre
sented in large part unevenness in the flow of defense orders.
These facts concerning the domestic situation suggest that
be very strong and that pres
the forces of expansion may still
sures on available resources may continue.
How the moderating of production increases abroad is to be
interpreted is also a question. The Bank of England and the
British Government, surveying the whole situation in the United

3/6/56

-29-

Kingdon, where balance of payments problems are of great
importance and where virtually no slack exists in the
economy, evidently are primarily concerned at this time
with the dangers of too great domestic demands and rising
costs and prices.
From a long-run point of view, the record of recent
years in the United States appears to be one of moderate
growth in output, employment, and the money supply, with
relative stability in prices. A possible near-term develop
ment, more hopeful than either of the alternatives presented,
is that the slackening recently evident in some areas will
make possible further expansion in others without undue pres
sures on resources and prices. Moderate adjustments of this
nature, resulting from the play of market forces accompanied
by a balanced budget and flexible credit policies, could help
to bring about--and are essential for--the balanced alloca
tion of resources that will assure the continuation of
economic equilibrium and growth.
What monetary policy would best contribute to the attain
ment of this end? It is apparent that the policy of the past
year has not been too restrictive.
But that has been a policy
of supplying the growth in reserves entirely through the dis
count window, with open market operations covering, at most,
That means that restraints be
only the seasonal variations.
came tighter in the course of time; as member bank borrowing
increased, discount rates were raised, and bank liquidity was
reduced to meet expanding loan demands. With the economy now
operating close to capacity, credit growth in the coming year
will need to be slower than in the past year, if rising price
pressures are to be avoided. It may be that the existing de
gree of restraint, in view of adjustments already in process in
the economy, will be fully adequate to bring about that result.
This would mean that reserves needed for further growth, as
well as for regular seasonal demands, ought to be supplied this
year through open market operations without additional resort
to member bank borrowing. On the other hand, the System should
be prepared to combat a renewal of inflationary pressures,
should that develop. Such a situation might call for some
shift in emphasis of policy--through a rise in discount rates
or more limited open market purchases--in accordance with de
velopments in production, prices, and demands for credit. The
task ahead seems to be a more delicate one than that carried
out during the past year.
Chairman Martin asked that Mr.
market operations.

Sproul open the discussion of open

3/6/56

-30
Mr. Sproul said that the over-all level of business remained

high and steady with some strong spots and some weak spots, but with
few signs that current near-stability is about to move out of the
present range on the up side or to give way on the down side.

It is

early, of course, to assess the possible economic consequences of the
decision of the President to seek reelection, he said, but at the moment
it seems unlikely that it

will have other than a steadying effect with

out greatly changing what appeared to be the immediate economic trend
before the decision was announced.
tinue large, Mr.

Capital expenditure programs con

Sproul said, and consumer spending stays at high levels,

but there appears to be a little

less pressure on productive capacity

than there was three months ago.
Mr. Sproul went on to say that in this situation the prescrip
tion of a steady hand on the controls and a watchful eye on the road
ahead continued to be in order.

He would try to stay where we are be

tween now and the next meeting of the Committee, he said, not being

too concerned about temporary or day-to-day variations in reserves,
if

they do not appear to be causing either knots or sloppy conditions

in the market and at the banks.

On the basis of present reserve pro

jections, Mr. Sproul thought that such a position might be maintained
by relatively minor changes in System holdings.

This would be helpful,

in terms of over-all policy, he said, because he felt it important that
the Committee try to give as little indication as possible of any
change in policy in either direction at this time.

-31

3/6/56

Mr. Johns said that he had very little

to add to Mr. Sproul's

statement since he was in agreement with the views that had been ex
pressed.

He noted that in the group who assisted him in open market

matters at the St. Louis Bank, a minority felt that the time had
arrived when the System should begin to ease noticeably in
policy.

For example,

gested.

Mr.

credit

its

a reduction in the discount rate had been sug

Johns said he was not a member of that minority and he

would have no reservations in

seconding the views expressed by Mr.

Sproul.
Mr. Bryan said that he had no fundamental disagreement with
the views expressed thus far.

In reviewing the situation with the

staff of the Atlanta Bank, there seemed to be agreement at the moment
that the tremendous upsurge in
clear that it

the economy had abated, but it

would not break out on the up-side again.

was not

Mr. Bryan

said he did not feel this was the time for any dramatic move in either
direction, such, for example,
noted, however,

as a change in

the discount rate.

He

that one member of his staff had suggested that the

discount rate be lowered.
Mr.

Fulton stated that he was not one to subscribe now to any

indication of easing of the situation.

He reviewed conditions in the

Cleveland District, pointing to high current levels of activity in
leading industries as well as to firm plans for large outlays for
new plant and equipment.

Mr.

Fulton said that he did not believe the

3/6/56

-32

down-turn in the automobile industry or in housing was lethal to the

economy.

The Committee should be ready to move within the next 30 to 45

days toward a position of greater restraint rather than ease, he said,
if

the price structure were to be affected by the upward pressures

which he felt
Mr.

existed.
Shepardson said that he was inclined to feel much as Mr.

Fulton had indicated.

He was concerned that as yet there had been

no apparent development that was encouraging in the agricultural
picture.
good.

The price squeeze for agriculture in

the long run is

not

Costs of farmers have continued to rise, and the prospects

are that there will be further increases reflecting higher labor costs
and other factors.

Mr.

Shepardson felt the Committee should be alert

to move against any further price increases.
material change in
firmly at its

He would not suggest a

policy right now, but the Committee should hold

present position and be on guard to avoid creeping price

increases such as occurred last year.
Mr. Robertson said that he agreed with the views expressed by
Messrs.

Fulton and Shepardson.

He noted that at the last two meetings

of the Committee emphasis had been placed on the "relaxation" side of
the even keel.

He felt the Manager of the Account had meticulously

followed the Committee's directions.
tion.

This had resulted in

some relaxa

Mr. Robertson said he doubted the need for resolving doubts on

the side of ease with purchases of $88 million of bills, just before

3/6/56

-33

the Treasury financing.

He also felt there had been too-easy use

of the repurchase mechanism.

He agreed that through mid-March, while

the Treasury financing was still

a factor, it

was necessary to con

tinue to maintain stability in the market, but he felt that over the
period of the next three weeks emphasis should be on the side of
resolving doubts in favor of firmness rather than of ease.

Mr.

Robertson said he was not urging a change in policy but only that,
when it was necessary to resolve doubts, that not be done on the
side of ease.

He referred to the level of prices of farm products

which Mr. Shepardson had mentioned, stating that he thought the Com
mittee tended to be too complacent about the average level of prices
and failed to give consideration to the extent to which the over-all
average was based upon a very low level of prices for farm products.
His suggestion would be that for the next three weeks management of
the account be directed to move imperceptibly toward taking up some
of the slack in the money market,

not taking any drastic action but

resolving doubts on the side of not purchasing securities whenever
there was a doubt.
Mr. Mills said that business sentiment since the preceding
meeting has fluctuated and continues to fluctuate, but on balance it
would look as though both business sentiment and economic prospects
have improved over the last three weeks.

His feelings were similar

to those expressed by Mr. Sproul and shared by Messrs. Johns and
Bryan, he said, and his views would be symbolized perhaps by a level
of negative free reserves around $300 million.

3/6/56

-34
Mr. Leach said that the Fifth District economy continued

strong.

There was no significant evidence of weakness although the

situation in
meeting and is

synthetic textiles has slipped further since the last
now reflected in curtailed operations.

The cotton

textile outlook continues favorable while bituminous coal output has
continued to rise and is running some 20 per cent above a year ago.
On balance, the district economy shows no appreciable movement in
either direction and activity continues at extremely high levels.
Although the immediate repercussions of the President's announcement
have not been great, it
garded as a plus factor.

has eliminated uncertainty and must be re
Loan demand continues strong.

Mr. Leach

said that recent developments do not call for any easing in the
present situation, and he was inclined to agree with those who felt
that Committee policy should be one of keeping an even keel in

the

immediate future.
Mr. Leedy said that he might express a different view if

the

problems in the Tenth District were ones about which the Committee
could do something.

There has been drought in a considerable part

of the District and there is some distress in farm areas.

However,

he would subscribe to the view that nothing the Committee can do will
make any direct contribution to that situation.
the most important thing in

Mr. Leedy felt that

the picture in the past three weeks was

the President's announcement.

He could see no basis on which the

Committee should take action to give encouragement to the furtherance

3/6/56

-35

of the kind of activity that has been taking place lately in
market.

For the time being,

the stock

he felt the Committee should pursue a

policy of watchful waiting along the lines suggested by Mr.

Sproul and

others.
Mr. Powell reviewed economic conditions in
briefly, stating that in

the Ninth District

his view open market operations should be

maintained on an even keel basis until the next meeting of the Com
mittee with no perceptible change being made in policy at the present
time.
Chairman Martin noted that Mr. Mangels was attending a meeting
of the Federal Open Market Committee as a Reserve Bank President for
the first

time and invited him to make any observations he cared to

make.
Mr. Mangels presented a summary of economic conditions in the
Twelfth District in which he brought out reasons why the trend of
optimism had been modified somewhat on the up-side during the past
several weeks.

With respect to bank credit, he noted that Twelfth

District banks have been losing demand deposits, that commercial and
industrial loans were down slightly, and that agricultural, real
estate, and consumer credit had increased recently.

Borrowings by

member banks recently had been quite modest and no occasion had arisen
in which the Bank considered it necessary to discuss continuous or
excessive borrowing with any member bank.

Mr. Mangels said that he

3/6/56

-36

would be inclined to continue about the pattern and policy that had
been followed in the open market during recent weeks.

If,

however,

there were to be a choice, perhaps he would be inclined to resolve
doubts on the side of ease rather than increased tightness.
Mr.

Irons described economic activities in the Eleventh

District as being at a high level and as warranting repetition of
the remark he had made at the preceding meeting that the plus signs
outbalanced the negative signs.

While he would not wish to take any

overt action at this time, he would align himself with the views ex
pressed by Messrs. Robertson and Shepardson to the effect that if
doubts were to be resolved one way or the other, they should be a
on the side of greater restraint rather than of ease.

little

Mr.

Erickson said that the New England economy remained strong.

Residential building awards,

which had been running behind figures for

a year ago, had improved and during the first

three weeks of February

were running well ahead of last year's figures.
its

first

New England has had

textile strike and reached a settlement with a wage increase

of five cents an hour immediately and a further increase of seven cents
an hour to be effective April 30.

Whether this would set a pattern for

other wage settlements in New England was difficult to judge at present.
Mr.

Erickson said that for the next three weeks he would maintain open

market policy as it
felt that if

had been followed in

the recent past.

He, too,

he had to lean either way, he would lean toward more re

straint rather than toward ease.

3/6/56

-37
Mr.

Szymczak said he saw nothing in the picture to require

a change in Committee policy as it had been decided at the meeting
three weeks ago and as pursued since that time.
adopted and the way in

which it

The policy then

had been carried out had not produced

a too-easy situation, in Mr. Szymczak's view.
Mr.

Balderston said that he was deeply concerned about the

price increases that were impending and about their coming so late
in the present cyclical movement as not to be effective in
demand.

restraining

The Committee must look forward to further price increases as

a result of increased freight rates and current and pending increases
in wage rates.

His concern was all the more real, he said, because

the price increases to which he referred were coming at a time when
there was topping out in parts of the economy.

On balance, Mr.

Balderston now felt the Committee should restrict credit a little
more than he felt it should six weeks ago.

He hoped the bill rate

would rise to the discount rate in the near future and that the Com
mittee would keep negative free reserves at about the $400 million

level.

In short, Mr. Balderston said he subscribed to the views ex

pressed by Mr. Robertson and others that the need was for a little
greater tightness than was the case a few weeks ago.
Chairman Martin said he believed that the members of the Com
mittee were in

fairly close agreement on the existing economic situa

tion and the credit policy called for.

His view, he said, had swung

3/6/56
slightly since the last meeting and he would now align himself with
those inclined toward tightness rather than toward an easier policy
at the moment.

However,

Chairman Martin said he thought the Com

mittee was dealing in minute degrees and shades of emphasis.

It

was very difficult for the Manager of the Account to operate under
such circumstances,

he said, but he did not think that any useful

purpose would be served in voting on a more specific policy directive.
Chairman Martin did not feel that any change should be made in the
Committee's directive at this juncture, although it might be desir
able at the next meeting to consider a change of language.
still

We were

in the middle of the Treasury financing and should maintain a

condition of stability in the market until a little

past March 15.

The Committee should not start changing its policy immediately after
this financing was completed.

In general, Chairman Martin felt that

the majority would agree that toward the end of the period between now
and the meeting of the Committee to be held on March 27, doubts could
be resolved in the direction of a little more tightness.

But this was

a shading of emphasis and he would think that the Committee should wait
until its next meeting for any change.
In response to Chairman Martin's inquiry as to whether this
represented a satisfactory summary of policy, several members of the
Committee indicated agreement with it,

and Mr. Rouse responded that

he saw no need for changing the limits in the directive to be issued
to the New York Bank.

3/6/56

-39
Thereupon, upon motion duly made
and seconded, the Committee voted
unanimously to direct the Federal Re
serve Bank of New York until otherwise
directed by the Committee:

(1)
To make such purchases, sales, or exchanges (in
cluding replacement of maturing securities, and allowing
maturities to run off without replacement) for the System
open market account in the open market or, in the case of
maturing securities, by direct exchange with the Treasury,
as may be necessary in the light of current and prospective
economic conditions and the general credit situation of the
country, with a view (a) to relating the supply of funds in
the market to the needs of commerce and business, (b) to re
straining inflationary developments in the interest of sus
tainable economic growth while taking into account any de
flationary tendencies in the economy, and (c) to the practical
administration of the account; provided that the aggregate
amount of securities held in the System account (including
commitments for the purchase or sale of securities for the
account) at the close of this date, other than special short
term certificates of indebtedness purchased from time to
time for the temporary accommodation of the Treasury, shall
not be increased or decreased by more than $1 billion;
(2) To purchase direct from the Treasury for the ac
count of the Federal Reserve Bank of New York (with discretion,
in cases where it seems desirable, to issue participations to
one or more Federal Reserve Banks) such amounts of special
short-term certificates of indebtedness as may be necessary
from time to time for the temporary accommodation of the
Treasury; provided that the total amount of such certificates
held at any one time by the Federal Reserve Banks shall not
exceed in the aggregate $500 million;
To sell direct to the Treasury from the System
(3)
account for gold certificates such amounts of Treasury securi
ties maturing within one year as may be necessary from time
to time for the accommodation of the Treasury; provided that
the total amount of such securities so sold shall not exceed
in the aggregate $500 million face amount, and such sales
shall be made as nearly as may be practicable at the prices
currently quoted in the open market.
Chairman Martin noted that Mr. Robertson had raised a question
about the use of the repurchase authority earlier during the meeting and

3/6/56

-40

inquired whether he felt it

would be preferable to have the use of

repurchase agreements considered at each meeting of the Committee
or to have this authority handled on some other basis.
Mr. Robertson said that he had no strong feeling that it
desirable to have the question come up at each meeting.
particular reason why this authority should not be in

was

He saw no

the same cate

gory as the several continuing operating authorizations which were
listed for consideration at the annual organization meeting and which
had been passed upon earlier today.

He stated that at the time the

Committee modified the repurchase authority last August to limit it
to the Federal Reserve Bank of New York rather than to all Federal
Reserve Banks,

it

was approved with the understanding that it

be used sparingly at rates below the discount rate.
ing had been carried out and he assumed that it

would

That understand

would be continued.

Chairman Martin stated that he understood that this would be
the case.

He also said that the question whether to consider the

repurchase authority at each meeting of the Committee, or only at
longer intervals, might be discussed at the meeting to be held on
March 27, 1956.

Thereupon, the following authoriza
tion was approved by unanimous vote:
The Federal Reserve Bank of New York is hereby authorized
to enter into repurchase agreements with nonbank dealers in
United States Government securities subject to the following
conditions:

-41

3/6/56
1.

Such agreements
(a)
In no event shall be at a rate below which
ever is the lower of (1) the discount rate
of the Federal Reserve Bank on eligible com
mercial paper, or (2) the average issuing
rate on the most recent issue of three-month
Treasury bills;
(b) Shall be for periods of not to exceed 15
calendar days;
(c) Shall cover only Government securities matur
ing within 15 months; and
(d) Shall be used as a means of providing the
money market with sufficient Federal Reserve
funds to avoid undue strain on a day-to-day
basis.

2.

Reports of such transactions shall be included in the
weekly report of open market operations which is sent
to the members of the Federal Open Market Committee.

3.

In the event Government securities covered by any
such agreement are not repurchased by the dealer
pursuant to the agreement or a renewal thereof, the
securities thus acquired by the Federal Reserve Bank
of New York shall be sold in the market or trans
ferred to the System open market account.
Thereupon the meeting adjourned.

Secretary